Can winnings from one case pay for losses in another?

Yes, if the agreement cross-collateralizes them. Without it, each case repays only its own funding, and a losing case's funding is lost. With it, the funder takes its total entitlement from the combined proceeds, so a winning case repays the funding of a losing one. In the worked example below, the funder's result on two cases rises from 1.5x to 3.0x, and the client's share of the winning case falls from $14 million to $8 million.

Who benefits from cross-collateralization?

The funder, mostly. It reduces the chance of a total loss and lets the funder price the deal lower. The client pays for that protection through its winning cases: proceeds it would have kept go to cover the funder's losses on its other cases. GAO found portfolio agreements are mostly with law firms (80 of 92 at three funders from 2017 to 2021), where cross-collateralization works across the firm's docket.

Is cross-collateralization the same as diversification?

No. Diversification spreads exposure across independent outcomes; cross-collateralization changes who bears a loss within a group. A cross-collateralized portfolio of cases that share a defendant, law firm or legal theory still fails together, and Burford's 10-K notes it has 'a number of assets involving the same counterparty' and that its portfolio 'may be concentrated in cases likely to have correlated results.'

Does it work across separate agreements?

Only if the documents say so. A funder with several agreements with the same client may seek to link them, so a default or loss under one can be recovered from proceeds under another, often through security interests over all the claims. Bench Walk's security interest in Silver Bull's claim covered the claim, its proceeds and appeal bond rights, which is the kind of security cross-collateralization relies on.

What happens if cases are added or removed?

The agreement decides. Adding cases can bring new proceeds into the pool, or new losses; removing a case can take its proceeds out of the funder's reach. Portfolio agreements commonly govern which cases enter, who approves them and whether a case can be settled or dropped without the funder's consent.

How should an investor read a portfolio's track record?

Ask whether returns are reported per case or per cross-collateralized deal. A deal-level multiple can look strong because winners covered losers, while the client's economics on each case were thin. Burford counts 'each of our contractual relationships as an asset,' so its asset counts are deals, not individual cases.

Cross-Collateralization

Litigation Finance & Legal Claims

Definition

Cross-collateralization is a term in a portfolio funding agreement that makes the proceeds of every case in the group available to repay the funder's capital and return on all of them. A loss on one case is then recovered from the proceeds of another. Burford's 2025 Form 10-K says many of its contractual relationships 'are composed of multiple underlying litigation matters that are often cross collateralized rather than reliant on the performance of a single matter.'

Why it matters

Cross-collateralization is how portfolio funding turns several binary bets into one more predictable return for the funder. It does so by moving risk to the client: the winners in the portfolio pay for the losers. That can make funding cheaper and available for cases that could not be funded alone, but it also means a client's best case may yield much less than it would have on single-case terms. For an investor, it improves the odds of a deal returning capital, as long as the cases do not all depend on the same thing. Ask whether a fund's deals are cross-collateralized, how proceeds are pooled, and how independent the cases in each pool really are.

Common misconceptions

•Cross-collateralization is not diversification, because it reallocates losses within a group but cannot help if the cases fail together.
•It is not free for the client, because proceeds from winning cases go to cover the funder's losses on its other cases.
•A cross-collateralized deal count is not a case count, because Burford counts each contractual relationship as one asset even when it covers many matters.
•Separate agreements are not linked by default, because cross-collateralization across them needs express terms and usually security.
•Pooling does not guarantee the funder's return, because if the combined proceeds are smaller than its entitlement, the shortfall is still a loss.

Technical details

Worked example (illustrative): one win, one loss

Two cases, $2.0 million funded on each, $4.0 million in total; the funder's return is 3.0x.

Case A settles for $20.0 million; case B loses.

Without cross-collateralization: the funder takes 3.0x of case A's $2.0 million, $6.0 million, from A; nothing from B. Funder 1.5x on $4.0 million; client keeps $14.0 million from A.

With cross-collateralization: the funder takes 3.0x of the full $4.0 million, $12.0 million, from A's proceeds. Funder 3.0x; client keeps $8.0 million.

The $6.0 million difference is the price the client pays for case B's funding.

Terms that make it work

Pooled proceeds: all cases' recoveries are applied to the total entitlement.

Security: liens over every claim and its proceeds.

Order: whether the funder's capital on all cases is repaid before any return.

Admission: which cases enter, and with whose approval.

Exit: what happens to the pool when the client settles, drops or transfers a case.

What AltStreet's reviews and filings show

Burford 2025 10-K: relationships often composed of multiple matters 'cross collateralized rather than reliant on the performance of a single matter'; each contractual relationship counted as one asset (237 balance-sheet assets at December 31, 2025); 'a number of assets involving the same counterparty.'

GAO-23-105210: portfolio agreements at three funders rose from about 19% of new agreements (2017) to 39% (2021); 80 of 92 were with law firms.

Bench Walk was entitled to 'a share of any proceeds arising from the Claim ... of up to 3.5x Bench Walk's capital outlay (or, if greater, a return of 1.0x Bench Walk's capital outlay plus 30% of Claim Proceeds),' secured by a security interest in the claim, its proceeds and rights under any appeal bond.

AltStreet's Legalist review: case portfolios with a single law firm about half the Fund IV book.

Questions about cross-collateralization

Is the deal cross-collateralized, and across which cases or agreements?

How much would the client keep from its best case under pooled terms?

What do the pooled cases have in common?

Can cases be added or removed, and who decides?

Are returns reported per case or per deal?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Can winnings from one case pay for losses in another?: Yes, if the agreement cross-collateralizes them. Without it, each case repays only its own funding, and a losing case's funding is lost. With it, the funder takes its total entitlement from the combined proceeds, so a winning case repays the funding of a losing one. In the worked example below, the funder's result on two cases rises from 1.5x to 3.0x, and the client's share of the winning case falls from $14 million to $8 million.
Who benefits from cross-collateralization?: The funder, mostly. It reduces the chance of a total loss and lets the funder price the deal lower. The client pays for that protection through its winning cases: proceeds it would have kept go to cover the funder's losses on its other cases. GAO found portfolio agreements are mostly with law firms (80 of 92 at three funders from 2017 to 2021), where cross-collateralization works across the firm's docket.
Is cross-collateralization the same as diversification?: No. Diversification spreads exposure across independent outcomes; cross-collateralization changes who bears a loss within a group. A cross-collateralized portfolio of cases that share a defendant, law firm or legal theory still fails together, and Burford's 10-K notes it has 'a number of assets involving the same counterparty' and that its portfolio 'may be concentrated in cases likely to have correlated results.'
Does it work across separate agreements?: Only if the documents say so. A funder with several agreements with the same client may seek to link them, so a default or loss under one can be recovered from proceeds under another, often through security interests over all the claims. Bench Walk's security interest in Silver Bull's claim covered the claim, its proceeds and appeal bond rights, which is the kind of security cross-collateralization relies on.
What happens if cases are added or removed?: The agreement decides. Adding cases can bring new proceeds into the pool, or new losses; removing a case can take its proceeds out of the funder's reach. Portfolio agreements commonly govern which cases enter, who approves them and whether a case can be settled or dropped without the funder's consent.
How should an investor read a portfolio's track record?: Ask whether returns are reported per case or per cross-collateralized deal. A deal-level multiple can look strong because winners covered losers, while the client's economics on each case were thin. Burford counts 'each of our contractual relationships as an asset,' so its asset counts are deals, not individual cases.